US Tax Reform Implications from a Chinese Perspective

Impact on Chinese High Net Worth Individuals (HNWIs)

As of January 1, 2017, the number of families in China with net assets of more than RMB 10 million (approximately $1.57 million) had reached 1.86 million, with 147,000 added in 2016 and a growth rate of 8.6 percent. Families with net assets of more than RMB 100 million ($15.7 million) has reached 121,000, with 12,000 added in 2016.

For Chinese HNWIs with an “American dream,” the Tax Act may have profound implications.

Buying US Real Estate

Buying US property is often the first thing Chinese HNWI immigrants consider, even before moving to the United States. For Chinese HNWIs who are inclined to invest in real estate for investment purposes or to purchase a house in the United States for personal use, the taxation cost could increase under the Tax Act. Pursuant to the Tax Act, the loan principal limit on the mortgage interest deduction for newly purchased houses after 2018 decreased from $1 million to $750,000. The interest deduction on home equity loans also has been repealed, which seems to be bad news for property buyers. Of course, this would not directly affect those who buy real estate without using a mortgage.

Marriage and Inheritance Planning

For Chinese HNWI immigrants, the increased exclusion of estate/gift tax is good news. Compared with Chinese laws, US law offers more flexible and tax-efficient options for pre-marriage and inheritance planning. The US trust regime and the corresponding tax rules could be a valuable tool for Chinese HNWIs. For example, a US trust could be considered for HNWIs with assets such as jewelry, antiques and crafts that are difficult to evaluate and put under a Chinese trust.